How Pavel Durov’s Arrest Affects the TON Ecosystem

Durov, who holds citizenship of Russia, France, the UAE, and Saint Kitts and Nevis, was arrested at Paris airport under a warrant related to the Telegram messaging app. On Aug. 26, French prosecutors charged the Russian-born billionaire with 12 different offenses, including insufficient content moderation.

Prosecutors said the charges are part of an investigation into organized cybercrime. These include “providing cryptology services aiming to ensure confidentiality without a certified declaration” and several counts of “complicity” with alleged crimes committed by Telegram users. The criminal activity relates to drug trafficking, child porn, and fraud.

Pavel Durov Faces 20 Years in Prison

Durov, 39, could face up to 20 years in prison if found guilty. Following his arrest, messages of support from key figures in the crypto industry flooded the internet. Whistleblower Edward Snowden said Durov’s arrest was “an assault on the basic human rights of speech and association.”

Tron founder Justin Sun pledged $1 million to a decentralized autonomous organization, or DAO, pushing for his release. Elon Musk , Ethereum cofounder Vitalik Buterin, former U.S. presidential hopeful Robert F. Kennedy Jr, and many others have all voiced their support for Durov under the hashtag #FreeDurov.

Telegram posted a statement saying that Durov “has nothing to hide.” The messaging app said it abides by EU laws, including the Digital Services Act. It added that “its moderation is within industry standards and constantly improving.”

“It is absurd to claim that a platform or its owner is responsible for the abuse of that platform,” Telegram said. “We’re awaiting a prompt resolution of this situation.”

Telegram is used by 950 million people worldwide. In June, Durov said, “Hundreds of millions of people [will] become familiar with blockchain” in 2024. He said the app “is at the epicenter of this societal transformation.”

The platform, together with its TON blockchain, has become a hub for so-called “clicker games” like Hamster Kombat and Notcoin . The games, which pay users for tapping their smartphone screens, enjoy a huge following. Hamster Kombat alone claims to have 300 million players. Notcoin reached 35 million users within three months of launch.

At the heart of the boom are Telegram “mini-apps”—web apps that run inside the messaging platform. Crypto projects can launch the apps directly in Telegram. Durov previously said that mini-apps have grown quickly because users don’t need to install them on their devices.

TON Price Nosedives as User Engagement Declines

However, the arrest of the Telegram CEO and the risk of his long-term incarceration are causing concern within the crypto industry. For example, the price of Toncoin (TON), the native token of the TON blockchain, slumped more than 25% in the 48 hours following Durov’s arrest, losing $2.4 billion of its market value.

TON plunged from $6.84 on Aug. 24 to $5.11 on Aug. 27. Trading volume has remained depressed, with an average of $980 million per day. However, the token has more than doubled in price since January.

Telegram founded Toncoin in 2018 as the Telegram Open Network but later spun off the project following regulatory challenges. In 2020, a group of enthusiasts under the TON Foundation took over the project and renamed it The Open Network (TON), a Layer 1 blockchain.

While the official account of the TON Foundation tweeted that “the TON Network remains strong and operational”, some users are starting to leave. According to an on-chain analyst Lookonchain , a relatively large Toncoin liquidity provider removed nearly $2 million in value from one of the token’s liquidity pools, putting pressure on the TON price.

After leaving the liquidity pool, the whale immediately started to dump their tokens, selling a total of 356,545 TON within four hours. Liquidity pools – a collection of crypto held in a smart contract – are key to the flow of trades on decentralized exchanges, or DEXs, providing users with the liquidity they need to swap between currencies.

The whale was later identified by analytics firm Nansen as “Elite Uniswap V3 LP” and is currently sitting on $1.2 million worth of USDT and over $1 million in Ethereum. But not everyone is selling. Andrei Grachev, head of web3 investor DWF Labs, bought $500,000 in TON in support of Durov.

Meanwhile, the total amount of value locked (TVL) in the TON network plummeted 38% to $311 million since Durov’s arrest, per data from Defillama. TVL is a measure of user activity and adoption in a decentralized finance ( DeFi ) protocol.

Total value locked in TON DeFi markets. Source: Defillama

It is notable that the TON blockchain had already been losing value since hitting a peak of about $770 million in TVL in late July. By the time Durov got arrested, the protocol had lost over $260 million in total value locked.

Toncoin has also emerged as a risky trading asset since Aug. 24. At press time, open interest—an indicator of market sentiment—swelled from $220 million to $349 million as traders capitalized on the increased volatility.

TON Projects Stay Positive Despite the Arrest

The most recent project to launch on The Open Network is the Dogs token, the native cryptocurrency of a Telegram-based game of the same name. The launch appears to have been successful, and the Dogs token moved on-chain to start trading on Aug. 26, two days after Durov’s arrest.

Several other games on Telegram, which are planning to release tokens on TON, have signaled support for Pavel Durov and his privacy goals. Gotbit Hedge Fund, which is working with the Hamster Kombat team as an advisor, tweeted that “the current situation will not critically affect” the project, arguably the biggest play-to-earn clicker game on Telegram.

Time Farm, a platform that rewards users with tokens for completing tasks, said on X that it will continue “to build and develop projects on the TON blockchain” in honor of Durov’s “vision of a censorship-free and innovative internet.”

David Kanitsky, chief operating officer at layer-1 protocol Quai Network, believes that the world and its geopolitical climate will work for crypto. The former Kraken executive spoke about the value of censorship resistance, decentralization, and sovereignty in building apps that gain mainstream adoption. Kanitsky told Cryptonews:

“We will only see more demands and the use of force by nations to control and access user information and social narratives like the Telegram CEO arrest, and slowly but very quickly, this will foster crypto adoption.”